Evaluate a Portfolio Management Services (PMS) offer as a legal mandate and operating relationship—not as a promise of returns. Before transferring money or securities, verify the manager’s SEBI registration, identify whether the service is discretionary, non-discretionary or advisory, read the current disclosure document and agreement, calculate every fee, compare performance on the required return measures, and test the mandate against your own liquidity and risk limits.
In India, the account-opening baseline is ₹50 lakh in funds or securities under SEBI’s September 20, 2024 FAQ. That size makes document review, conflict checks and exit planning essential: registration is not an endorsement, historical performance is not a forecast, and the agreement—not a sales presentation—controls your rights.
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Start with the legal and practical scope
PMS is a separately managed portfolio arrangement in which a portfolio manager manages securities or advises a client under a written mandate. The service is different from buying a pooled mutual-fund unit: your holdings, cash flows, restrictions and tax circumstances can produce an outcome that differs from the manager’s published approach.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteThis guide applies to PMS offers in India under the Securities and Exchange Board of India (SEBI) framework. SEBI’s FAQs are guidance rather than a substitute for current regulations and circulars. Check the latest rules, the provider’s current disclosure document and the final agreement on the date you sign.
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The ₹50 lakh entry baseline
SEBI’s FAQ dated September 20, 2024 states that the minimum value for opening a PMS account is INR 50 lakh in funds or securities. A provider may set a higher minimum for a particular product. Partial withdrawal is allowed if the required minimum remains in the account; if market movements later reduce the portfolio below ₹50 lakh, the client is not required to top up solely for that reason.
Do not treat the threshold as a suitability test. It only describes the regulatory account-opening floor. You still need enough liquid assets outside the PMS to meet emergencies, taxes, debt payments and near-term goals.
1. Verify the provider before discussing returns
Use SEBI’s official portfolio-manager registration information to confirm the exact legal entity, registration status and name appearing on the offer, agreement, bank instructions and custody documents. A group’s brand name, an individual salesperson or a related investment adviser is not a substitute for checking the contracting entity.
- Match the registered legal name and address across the SEBI record, disclosure document and agreement.
- Confirm that the registration is current and that you are dealing with the registered portfolio-management business, not an unauthorised intermediary collecting funds.
- Ask who will manage the account, who will hold the assets and who can issue instructions.
- Keep a dated copy of the registration check and all documents you relied on.
SEBI registration does not mean that SEBI has approved the service, guaranteed its performance or certified that the disclosure document is accurate or adequate. Treat registration as a regulatory eligibility check, not a recommendation.
2. Establish exactly what authority you are granting
The words “PMS” cover materially different relationships. Make the service type explicit in the account-opening form and agreement, and ensure it matches the explanation you received.
Discretionary PMS
In a discretionary arrangement, the manager independently makes investment decisions for your portfolio within the agreed mandate. You normally set the objectives, restrictions and permitted universe, but you do not approve each trade. Read the mandate for position limits, concentration, cash ranges, derivatives, borrowing, rebalancing and any authority to use related entities.
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Non-discretionary PMS
In a non-discretionary arrangement, the manager recommends or arranges investments but follows your directions. Clarify how quickly an instruction must be given, what happens if you do not respond, and who bears responsibility for a missed or delayed trade. More control can also mean slower execution and a greater burden on you to understand each transaction.
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SEBI’s September 2024 FAQ says non-discretionary PMS may invest up to 25% of a client’s assets under management in unlisted securities, subject to the applicable framework. Confirm the current limit, valuation method, consent process and liquidity terms in the agreement rather than relying on a presentation.
Advisory service
Under an advisory service, the provider gives advice but does not execute trades or perform custody and accounting functions for you. The account, dealing authority and fees should therefore look different from a managed PMS account. If an offer uses “advisory” and “PMS” interchangeably, stop and obtain a written explanation.
3. Read the disclosure document and agreement together
Obtain the current disclosure document before signing. SEBI says it should be provided in advance and made available on the manager’s website. Read it alongside the PMS agreement, account-opening form, power of attorney, custody terms and any fee schedule. The sales deck is not a substitute for those documents.
Items the documents should answer
- The investment objective and the Investment Approach to be used.
- Whether the service is discretionary, non-discretionary or advisory.
- Permitted instruments, sectors, geographies, market-cap ranges and exposure limits.
- Position-sizing, concentration, cash, leverage and derivatives rules.
- Client-specific restrictions and how they can alter implementation.
- Expected tenure, withdrawal procedure, termination rights and settlement timing.
- All management, advisory, performance, brokerage, custody, demat, transaction and other charges.
- Risk factors, valuation policies and treatment of illiquid or unlisted securities.
- Related-party transactions, conflicts and the consent required for related-party investments.
- Custody arrangements, statements, audit access, complaint channels and reporting frequency.
- The manager’s previous three years of audited financial statements, as required in the disclosure requirements on SEBI’s portfolio-manager regulations page.
Circle every difference between the documents and the verbal pitch. Ask for a revised document or written clarification before funding; do not assume an oral assurance overrides the signed agreement.
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A strategy can be well managed and still be unsuitable for you. Map the offer against your time horizon, loss capacity, cash requirements and existing holdings.
Build a personal constraint sheet
- List money needed within the next one, three and five years. Keep those amounts outside a strategy that can experience a drawdown or hold illiquid securities.
- Write the maximum temporary and permanent loss you could tolerate without abandoning the plan.
- Record your existing equity, debt, property, business and foreign exposures. A “diversified” PMS can increase concentration when added to your other assets.
- Specify restrictions that matter to you, such as avoiding particular sectors, issuers, leverage or unlisted investments.
- State how much notice you can give for a withdrawal and whether you can wait for an orderly sale.
Check the investment universe
SEBI’s FAQ says discretionary PMS can invest in listed or exchange-traded securities, money-market instruments, direct-plan mutual-fund units and other securities permitted by SEBI. The precise universe, however, is controlled by the current rules and your agreement. Confirm whether the strategy can hold cash, use derivatives, participate in corporate actions, lend securities or buy unlisted instruments.
Ask for maximum issuer, sector and instrument exposures, not just a target allocation. A strategy that allows 20% in one issuer or a large single-sector position behaves differently from one with tighter limits. Request the process for breaches, exceptions and rebalancing.
Investigate related-party conflicts
Ask whether the manager, its associates, directors or related parties issue, distribute, broker or hold securities that the strategy may buy. SEBI’s framework places limits and consent requirements on investments in an associate’s or related party’s securities. Obtain the specific approval mechanism in writing and review every disclosure rather than accepting a generic “conflicts are managed” statement.
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SEBI permits a fixed fee, a performance-based fee or a combination. The agreement must state the amount and method for each service, and no upfront fee may be charged directly or indirectly. A low management fee can still produce a high total cost if transaction expenses or performance fees are substantial.
Make a total-cost inventory
| Cost category | What to confirm in writing |
|---|---|
| Management or advisory fee | Rate, billing frequency, fee base, taxes and whether cash is included in the base. |
| Performance fee | Formula, benchmark or hurdle, high-water mark, loss recovery, crystallisation date and treatment of withdrawals. |
| Brokerage and transaction costs | Brokerage rate, exchange charges, stamp duty, securities transaction tax and other levies. |
| Custody and demat | Custodian, account fees, statement charges and asset-transfer costs. |
| Other stated expenses | Audit, research, fund expenses, corporate-action or special-service charges. |
| Exit costs | Any applicable early-exit fee, transfer charge or settlement expense. |
Demand worked examples
Ask the manager to calculate the fee for a gain, a loss and a later recovery using your expected contribution and withdrawal pattern. The example should show the portfolio value before fees, every expense deducted, the performance-fee base and the amount you receive. Do not infer a high-water mark, hurdle or loss carry-forward from industry practice; those mechanics must be stated in the agreement.
Also ask when fees are crystallised. A quarterly performance fee can differ greatly from an annual fee when returns reverse during the year. Confirm whether a withdrawal triggers a fee calculation and whether the fee is charged on realised gains, unrealised gains or both.
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6. Compare performance on like-for-like measures
Never select a PMS from its best annual return or a single client example. Compare the same Investment Approach, dates, benchmark and return measure across offers.
Understand TWRR and XIRR
SEBI requires performance communications for an Investment Approach to show time-weighted rate of return (TWRR) and the selected benchmark’s trailing return. TWRR is designed to evaluate the manager’s investment performance while reducing the effect of external cash flows.
Client reports should show your money-weighted XIRR alongside the minimum, maximum and median investor XIRR for that approach. They should also report TWRR and benchmark returns separately. XIRR reflects the timing and size of your deposits and withdrawals, so it can diverge from the approach-level TWRR even when the same securities were used.
SEBI’s FAQ explains that an individual portfolio can differ from the approach and from other investors because of “the timing of inflows and outflows of funds” and “differences in the portfolio composition because of restrictions and other constraints.” Treat that as a reason to inspect your own cash-flow history, not as a flaw in the reporting.
Use additional decision measures
- Compare full-period and rolling-period returns rather than only calendar-year winners.
- Measure maximum drawdown, recovery time and the frequency of losing periods.
- Review volatility, concentration and the proportion of time the portfolio held cash.
- Check that the benchmark represents the assets, geography and risk the strategy actually uses.
- Separate realised results from marks on illiquid holdings and ask how valuations are determined.
- Identify whether returns are shown before or after fees and taxes, and use the same basis for every offer.
Historical performance is not a promised return. SEBI prohibits indicative or guaranteed returns in this context. A manager should be able to explain weak periods and changes in process without turning the explanation into a forecast.
7. Examine liquidity, withdrawals and the absence of a lock-in
SEBI’s FAQ says a portfolio manager cannot impose a lock-in on the investor. That does not mean an immediate, cost-free exit. An applicable early-exit fee may be charged, and the agreement determines notice, sale, transfer and settlement mechanics.
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Questions to settle before funding
- How many business days’ notice is required for a full or partial withdrawal?
- Can you withdraw cash and securities, or only cash after liquidation?
- How are thinly traded, suspended or unlisted holdings transferred or valued?
- What happens to open orders, corporate actions, dividends and tax records when you terminate?
- Does the fee calculation change when you withdraw part of the portfolio?
- Who authorises the final settlement and where will the assets be delivered?
Ask for the termination clause and a sample settlement statement. A verbal statement that “there is no lock-in” is incomplete unless you know the notice period, charges and practical sale process.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.8. Confirm custody, statements and ongoing reporting
Understand whose name appears on the demat and bank accounts, who has withdrawal authority and how you can independently view holdings. The custodian and portfolio manager should be identifiable, and statements should reconcile to your own records.
SEBI’s FAQ describes quarterly client reports covering portfolio composition and value, transactions, benefits received, expenses, risks, relevant defaults and distributor commissions. Confirm the delivery channel, reporting date, contact for errors and procedure for raising a complaint. Check that the report includes both your investor-level XIRR information and the required approach-level TWRR and benchmark presentation where applicable.
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Use one worksheet for every offer and compare like with like. The following axes prevent a persuasive presentation from dominating the decision.
| Comparison axis | Evidence to record | Decision question |
|---|---|---|
| Authority | Discretionary, non-discretionary or advisory wording; powers granted. | How much control and responsibility do I want? |
| Mandate | Instruments, limits, concentration, liquidity, derivatives and unlisted exposure. | Can the strategy take risks I cannot tolerate? |
| Customization | Restriction process, minimum account size and effect on implementation. | Will my restrictions materially change the portfolio? |
| Total cost | All recurring, transaction, custody, tax and exit charges. | What will I pay in a quiet year and a high-turnover year? |
| Performance evidence | TWRR, XIRR ranges, benchmark, dates, drawdowns and fee basis. | Is the comparison on the same terms? |
| Liquidity | Withdrawal notice, settlement, valuation and early-exit fee. | Can I access money when my plan requires it? |
| Conflicts | Related-party disclosures, limits and consent procedure. | Can incentives influence security selection? |
| Operations | Custodian, statements, quarterly reports, audit and complaint route. | Can I monitor and challenge the account? |
Keep the source and date for every number. If an offer does not state a value, record “not stated” and ask for it rather than filling the gap with an assumption.
10. Red flags that justify pausing the decision
- Pressure to transfer money before you receive the disclosure document and agreement.
- Claims that SEBI registration means the service is approved, safe or guaranteed.
- Indicative, assured or guaranteed return figures.
- A fee quote that omits custody, brokerage, taxes, transaction costs or exit charges.
- Refusal to provide a worked performance-fee example.
- Performance shown only for a selected period, top account or model portfolio without required TWRR, benchmark and investor XIRR context.
- Unclear legal entity, bank account, custodian or power of attorney.
- Unlisted or related-party investments described without limits, valuation rules or consent terms.
- Vague answers about withdrawal timing, settlement or how illiquid assets are handled.
- Documents that conflict with the sales presentation or contain blank fee and mandate fields.
One red flag may reflect an administrative error; several together are a reason not to fund until corrected in writing.
11. A final pre-funding checklist
- Verify the exact provider and current SEBI registration status.
- Record whether the service is discretionary, non-discretionary or advisory.
- Confirm that your investable amount meets the ₹50 lakh baseline and that emergency liquidity remains separate.
- Obtain and date the disclosure document, agreement, fee schedule, custody terms and powers of attorney.
- Match the permitted universe and restrictions to your risk capacity, horizon and existing portfolio.
- List every fee and obtain worked calculations for gains, losses, recovery and withdrawal.
- Review TWRR, benchmark and investor XIRR information on identical dates and fee bases.
- Check drawdowns, concentration, liquidity, valuation and related-party disclosures.
- Confirm quarterly reporting content, statement access, custodian identity and complaint process.
- Understand notice periods, early-exit charges and settlement before signing.
- Have an independent, regulated adviser or lawyer review terms if the mandate or fee formula is difficult to interpret.
What a defensible decision looks like
You do not need to predict which manager will have the highest return. You need a documented reason that the provider is authorised, the authority is acceptable, the mandate fits your constraints, the total cost is understood, the performance comparison is fair and the exit process is workable. If any of those facts is unavailable, defer the investment until the provider supplies a clear contractual answer.
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Recheck the disclosure document and applicable SEBI requirements when the mandate, fee schedule or strategy changes. A suitable PMS offer today can become unsuitable after a change in risk, liquidity needs, holdings or manager process.
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